Commentary on how China and the world are adapting to each other -- or not.

May 23, 2011

Escaping Antidumping Charges: Move

Apologies for not posting recently. I arrived in Beijing May 10th and have spent the last 2 weeks just getting my bearings and setting up the RCCPB's Beijing office. Things are beginning to calm down and fall into place; so I should be writing in the space more regularly.

Andrew Higgins of the Washington Post has a wonderful article today on the tussle between American and Chinese furniture makers. Facing a "tsunami" of Chinese imports, US furniture makers got together and brought an antidumping case against the Chinese. They won a 7% tariff penalty, which actually is extremely low, but high enough to put pressure on the Chinese, who are facing higher labor costs and a gradually rising RMB. So the Chinese have responded by moving much of their production from Dongguan, in southeastern China just north of Hong Kong to Vietnam. By being in Vietnam, they pay lower wages and avoid the penalties instituted against Chinese furniture makers.

This may sound like a dirty trick, but nothing about antidumping is clean, from how tariff penalties are calculated (a fig leaf of technicalites covering arbitariness) to the ruling process (the empowered panelists are from the plaintiff's home government and are lobbied by local legislators). Though not mentioned in the story, the Chinese response -- to move -- is also not uncommon. BASF, the world's largest chemical company, has multiple factories around the world not only because it is economically efficient to do so, but because it also makes it easier to get around antidumping penalties. When hit w/ margins on a product made in one factory, they can simply move production to another facility. In the Chinese case, they built new factories from scratch.

One of the neat twists of the story is that the primary investors in the factories are actually not Mainland Chinese, but Taiwanese. So it's really about a Taiwanese, not Chinese move, to Vietnam. With no strong ties to the central government and no long-term commitment to employ Mainlanders, it was not a hard decision to move to Vietnam. I actually think moving is a strategy open to Mainlanders in this and other sectors as well. Of course, the US wouldn't mind if they moved their furniture production to America; that may happen for other more capital-intensive sectors with high transportation costs, but I don't expect that will be the final result in this case.

Comments

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This was a MAJOR issue five years back when the anti-dumping lawsuits were first filed, and certainly led to many of the large furniture manufacturers to set up shop in Vietnam. The major Chinese manufacturers (mostly Taiwanese, by the way) hired top-notch lawyers to dispute the dumping claims, I like it very much, thank you

Scott - I forwarded this to a friend who was an ex-pat in China for 7 years as an executive in the industry in question. He sent back a response I thought was worth sharing in full (scrubbed of any identifiers):

This was a MAJOR issue five years back when the anti-dumping lawsuits were first filed, and certainly led to many of the large furniture manufacturers to set up shop in Vietnam. The major Chinese manufacturers (mostly Taiwanese, by the way) hired top-notch lawyers to dispute the dumping claims, and most were only tagged with modest single-digit tariffs. The small and medium players got hit with massive tariffs – some initially proposed tariffs were in excess of 50%.

When the Chinese manufacturers moved to Vietnam, they did so with only select furniture groups. Typically, the factories in Vietnam focus on bedroom furniture, while the Chinese factories focus on everything else. As the domestic market for wood furniture in China grows, we are seeing some manufacturers move other furniture groups to Vietnam to free up capacity, but it is very slow.

Vietnam clearly benefited the most of the SE Asian countries, but we’ve also seen a significant move into Indonesia. Logically, given its forests, Indonesia is the preferred choice over Vietnam. But its relative instability and lagging infrastructure has held back the development of the industry.